On Stability of Money Demand Model in Pakistan: A Super Exogeneity Testing Approach Using Indicator Saturation
Journal Title: Pakistan Journal of Economic Studies - Year 2022, Vol 5, Issue 1
Abstract
The study attempts to test the stability of money demand (M-D, hereafter) model in case of Pakistan under the shade of super exogeneity testing procedure with an amalgamation of recently developed techniques of selecting breaks or location shifts (data driven) using Indicator Saturation like; Impulse Indicator Saturation (IIS), Step Indicator Saturation (SIS) and Trend Indicator Saturation (TIS). The estimated VECM model of money demand (M2) with Real Income, Inflation Rate, interest rates (short and long term), Financial Innovation and Financial Development; reveals that the parsimonious model is structurally invariant and remain super exogenous to relevant class of interventions for parameters of interest during the stipulated period (1972-2018) in Pakistan and hence can be used for policy purposes. Consequently, Lucas critique refuted in case of Pakistan.
Authors and Affiliations
Muhammad Jawad, Hafsa Hina, Atiq-ur-Rehman
Keywords
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